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HomeMy WebLinkAbout02-11-2021 IOC Agenda PacketCity of San Luis Obispo, Agenda, Planning Commission Agenda INVESTMENT OVERSIGHT COMMITTEE Thursday, February 11, 2021 Based on the threat of COVID-19 as reflected in the Proclamations of Emergency issued by both the Governor of the State of California, the San Luis Obispo County Emergency Services Director and the Investment Oversight Committee (IOC) of the City of San Luis Obispo as well as the Governor’s Executive Order N-29-20 issued on March 17, 2020, relating to the convening of public meetings in response to the COVID -19 pandemic, the City of San Luis Obispo will be holding all public meetings via teleconference. There will be no physical location for the Public to view the meeting. Below are instructions on how to view the meeting remotely and how to leave public comment. Additionally, members of the Investment Oversight Committee are allowed to attend the meeting via teleconference and to participate in the meeting to the same extent as if they were present. Using the most rapid means of communication available at this time, members of the public are encouraged to participate in Committee meetings in the following ways: 1. Remote Viewing - Members of the public who wish to watch the meeting can view: ➢ View the Webinar: ➢ Webinar link: https://slocity- org.zoom.us/j/91750766593?pwd=Y3Z0Snc0cFNXWWcwbFBhb29mbVhCQT09 ➢ Call in: 1-669-900-6833 ➢ Webinar ID: 917 5076 6593 ➢ Passcode: 237985 2. Public Comment - The Investment Oversight Committee will still be accepting public comment. Public comment can be submitted in the following ways: • Mail or Email Public Comment ➢ Received by 10:00 AM on the day of meeting - Can be submitted via email to advisorybodies@slocity.org or U.S. Mail to City Clerk at 990 Palm St. San Luis Obispo, CA 93401 ➢ Emails sent after 10:00 AM and up until public comment is opened on the item – Limited to one page emailed to cityclerk@slocity.org, which will then be read aloud during the public comment period on the item specified. • Verbal Public Comment ➢ Received by 10:00 AM on the day of the meeting - Call (805) 781-7164; state and spell your name, the agenda item number you are calling about and leave your comment. The verbal comments must be limited to 3 minutes. All voicemails will be forwarded to the IOC and saved as Agenda Correspondence. ➢ During the meeting – Comments can be submitted up until the Public Comment period is opened for the item when joining via the webinar (instructions above). Once you have entered the webinar/meeting please type your name and the Item # in the questions box. Your mic will be unmuted when Public Comment is called for the item you indicated. All comments submitted will be placed into the administrative record of the meeting. Investment Oversight Committee Agenda for February 11, 2021 Page 2 1:30 p.m. REGULAR MEETING TELECONFERENCE Broadcasted via webinar CALL TO ORDER: Chair Brigitte Elke ROLL CALL : Committee Members Heidi Harmon, Natalie Harnett, Derek Johnson, Debbie Malicoat, and Chair Brigitte Elke OTHERS PRESENT: Tavy Garcia, Staff, Monique S. Spkye, Managing Director for PFM Asset Management LLC, and Serenity Whorley, Recording Secretary PUBLIC COMMENT: At this time, people may address the Committee about items not on the agenda. Persons wishing to speak should come forward and state their name and address. Comments are limited to three minutes per person. Items raised at this time are generally referred to staff and, if action by the Committee is necessary, may be scheduled for a future meeting. CONSIDERATION OF MINUTES 1. Minutes of the Investment Oversight Committee of November 12, 2020 BUSINESS ITEMS 2. Presentation of the Quarterly Investment Report on Portfolio Performance including ESG results Recommendation: Approve and confirm investment policy compliance. 3. Presentation of 2019-20 CAFR Investment Results Recommendation: Receive a report on the audited investment return for FY2020 Investment Oversight Committee Agenda for February 11, 2021 Page 3 COMMENT AND DISCUSSION The committee will review topics to discuss at the next regularly scheduled meeting. ADJOURNMENT The next Regular Meeting of the Investment Oversight Committee is scheduled for Thursday , May 13 , 2021 at 1:30 p.m., in the Council Hearing Room, 990 Palm Street, San Luis Obispo, California. The City of San Luis Obispo wishes to make all of its public meet ings accessible to the public. Upon request, this agenda will be made available in appropriate alternative formats to persons with disabilities. Any person with a disability who requires a modification or accommodation in order to participate in a meeting should direct such request to the Finance Department at (805) 781-7125 at least 48 hours before the meeting, if possible. Telecommunications Device for the Deaf (805) 781-7107. Meeting audio recordings can be found at the following web address: http://opengov.slocity.org/WebLink/1/fol/61037/Row1.aspx Minutes - Draft Investment Oversight Committee Thursday, November 12, 2020 Regular Meeting of the Investment Oversight Committee CALL TO ORDER A regular meeting of the Investment Oversight Committee was called to order on Thursday, November 12, 2020, at 1:40 p.m., by Chair Brigitte Elke with all member present via teleconference. . ROLL CALL Present: Committee Members Natalie Harnett, Derek Johnson, Debbie Malicoat, and Chair Brigitte Elke Absent: Committee Members Heidi Harmon and Committee Member Daniel Humphrey (Public Member) Others Present: Monique Spyke, Managing Director for PFM Asset Management LLC, and Serenity Whorley, recording secretary. PUBLIC COMMENT ITEMS NOT ON THE AGENDA None. --End of Public Comment-- APPROVAL OF MINUTES 1. Review of Minutes of the Investment Oversight Committee Meeting of September 24, 2020: ACTION: UPON MOTION BY COMMITTEE MEMBER JOHNSON, SECONDED BY COMMITTEE MEMBER MALICOAT, CARRIED 4-0-2 (WITH MEMBER HARMON AND MEMBER HUMPHREY absent), to approve the September 24, 2020 minutes, as presented. PUBLIC COMMENT None --End of Public Comment-- BUSINESS ITEMS City of San Luis Obispo, Title, Subtitle Minutes - Investment Oversight Committee Minutes of Thursday, November, 12, 2020 Page 2 2.Presentation of the Quarterly Investment Report on Portfolio Performance Monique Spyke, Managing Director for PFM Asset Management LLC, provided a PowerPoint presentation and responded to Committee inquiries. Public Comment None. --End of Public Comment-- ACTION: UPON MOTION BY COMMITTEE MEMBER JOHNSON, SECONDED BY COMMITTEE MEMBER HARNETT, CARRIED 4-0-2, (WITH MEMBER HARMON AND MEMBER HUMPHREY absent) recommendation to approve and confirm investment policy compliance. 3.Cash Flow Analysis and agenda forecast Monique Spyke presented the cash flow analysis. Finance Director Elke provided an agenda forecast. Public Comment None. --End of Public Comment-- ACTION: UPON MOTION BY COMMITTEE MEMBER JOHNSON, SECONDED BY COMMITTEE MEMBER MALICOAT, CARRIED 4-0-2, (WITH MEMBER HARMON AND MEMBER HUMPHREY absent) recommendation to approve to reinvest excess liquidity in longer-term, higher-yielding securities with a 15% liquidity cushion. ADJOURNMENT The meeting was adjourned at 2:11 pm. The next Regular Meeting of the Investment Oversight Committee is scheduled for Thursday, February 11, 2021 at 1:30 p.m., in the Council Hearing Room, 990 Palm Street, San Luis Obispo, California. APPROVED BY INVESTMENT OVERSIGHT COMMITTEE: XX/XX/XXXX Quarterly Investment Report AS OF DECEMBER 31, 2020 February 11, 2021 This report presents the City’s investment portfolio for the quarter ending December 31,2020.It has been prepared to comply with regulations contained in California Government Code Section 53646 .The report includes all investments managed by the City on its own behalf as well as for other third-party agencies on a fiduciary basis such as the Whale Rock Commission. It also includes all City-related investments held by trustees for bond debt service obligations .As required, the report provides information on the investment type, issuer,maturity date,cost,and current market value for each security. Market Themes Markets Weigh Massive Policy Support Against Economic Challenges Coronavirus •Resurgence in fourth quarter due to colder weather •Initial distribution of v accines Economy •Recovery continues •Big business built liquidity cushion •Consumers generally in good shape to drive future spending •Impact of pandemic not felt evenly Markets •Markets rally after pre sidential election •Fed c ommitted to strong accommodation •Additional fiscal stimulus on the way Market Considerations •The Fed reaffirmed its commitment to utilize the full scope of its monetary authority until a full economic recovery is achieved. It kept short-term rates in their current range of 0.00% to 0.25%. •The U.S. Treasury yield curve steepened during the quarter. Short-term rates (on maturities less than five years) were essentially unchanged, while yields on maturities beyond five years increased by 10 to 25 basis points (0.10% to 0.25%). Source: Federal Reserve, economic projections as of December 2020 0.1%0.1%0.1%0.1% 2.5% 0% 1% 2% 3% 2020 2021 2022 2023 Longer Run Federal Funds Rate 0.06% 0.36% 0.91% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3 M 1 Y 2 Y 3 Y 4 Y 5 Y 10 Y Maturity U.S. Treasury Yield Curve December 31, 2019 September 30, 2020 December 31, 2020 Source: Bloomberg as of December 31, 2020. Market Considerations •Diversification away from U.S. Treasuries was again additive to performance in the fourth quarter. Following two consecutive quarters of significant spread retracement, most sectors continued to inch tighter as investors sought all outlets for additional yield. •Investment grade corporates outpaced the performance of most other sectors during the quarter. Corporates proved to be a valuable asset class for both the quarter and for all of 2020, despite significant market disruptions early in the year. Source: Bloomberg as of December 2020. 1-5 Year Indices 0.02%0.17%0.26% 0.71% 1.76% 0% 1% 2% 3% 4% 5%U.S. TreasuryAgencyABSCorp A-AAACorp BBBFourth Quarter 2020 4.25% 3.35%3.22% 5.41% 6.00% 0% 1% 2% 3% 4% 5% 6% 7%U.S. TreasuryAgencyABSCorp A-AAACorp BBBFull Year 2020 What we are watching… •Due to the economic progress to date, the Fed released more optimistic projections for 2021, lowering its unemployment rate forecast and raising its forecast for real gross domestic product (GDP). •As 2020 ends, the uncertainties of 2021 now come into focus. Significant central bank intervention is expected to continue, and we expect interest rates to remain low for the foreseeable future. The speed of vaccine rollouts will ultimately drive the pace of the anticipated “return to normalcy.” 2.9%2.3% -2.4% 4.2% 3.2%2.4% -4% -2% 0% 2% 4% 6% 8% 2018 2019 2020 2021 2022 2023 Change in Real GDP 3.9%3.5% 6.7% 5.9% 4.2%3.7% 0% 2% 4% 6% 8% 10% 2018 2019 2020 2021 2022 2023 Unemployment Rate Source: Federal Reserve, economic projections as of December 2020. actual actual Fed projection Fed projection Current Cash & Investment Summary The following is a summary of the City’s cash and investments based on market value, as of December 31, 2020, compared to the prior quarter. Investment Entity December 31, 2020 September 30, 2020 Percent of Total** City Held Cash & Investments $23,330,369 $40,839,184 15% LAIF Held Investments $23,912,821 $23,862,150 16% PFM Managed Investments*$103,665,721 $83,585,116 69% Trustee Held Investments $72,529 $72,376 <1% TOTAL $150,981,441 $148,358,826 100% *Figures shown exclude accrued interest. **Details may not add up to total due to rounding. Current Cash & Investment Summary There are several factors which result in changes in cash and investment balances from month-to-month and quarter-to- quarter, dependent on the receipt of revenues or a large disbursement. •Some major City revenues are received on a periodic rather than a monthly basis. Property Tax is received in December, January, April, and May of each year. Transient Occupancy Tax is received monthly but varies considerably due to seasonality. •Payments for bonded indebtedness or large capital projects can reduce the portfolio substantially in the quarter in which they occur. •The City pays its CalPERS obligation in a lump sum at the beginning of the fiscal year to achieve interest savings. Factors Securities Security Type Market Value % of Portfolio % Change vs. 9/30/20 Permitted by Policy In Compliance U.S. Treasury $27,254,877 26.3%-4.6%100% Federal Agency $31,425,776 30.3%-6.2%100% Municipal Obligations $2,017,866 1.9%+0.1%30% Negotiable CDs $5,096,505 4.9%-3.0%30% Corporate Notes $13,545,950 13.1%-4.6%30% Asset-Backed Securities $4,199,557 4.1%-1.0%15% Securities Sub -Total $83,540,531 Money Market Fund $20,125,190 19.4%+19.4%20% Accrued Interest $362,915 Securities Total $104,028,636 Securities in the City’s portfolio are priced by Refinitiv, an independent pricing service at the end of every month. In some cases, the City may have investments with a current market value that is greater or less than the recorded value. These changes in market value are due to fluctuations in the marketplace having no effect on yield, as the City does not intend to sell securities prior to maturity. Nevertheless, these market changes can impact the total value of the portfolio. Total Return Total return is calculated based on interest and both realized and unrealized changes in market value; this is expressed as a rate of return over a specified period of time based on cost and is backward -looking. •Focused on long-t erm performance and growth •Affected by both yield an d market valu e fluctuations •Reflects “true value” of t he portfolio •Recommended ap proach by th e Government Finance Officers Association PFM Managed 12/31/2020 09/30/2020 Average Maturity (Years)2.38 2.44 Effective Duration1 2.11 2.18 Average Market Yield 0.34%0.41% Total Rate of Return 3 Months 1 Year 3 Years Since Inception City of SLO 0.17%3.90%3.25%2.12% 0–5 Treasury Index 0.02%3.58%3.01%1.91% Variance +0.15%+0.32%+0.24%+0.21% 1Effective duration is the approximate percentage change in price for each 1% change in interest rates. Summary of Activity for the Quarter & Future Liquidity As of December 31, 2020, the investment portfolio was in compliance with all State laws, the City's Statement of Investment Policy, and the City’s Investment Management Plan. Cash receipts and disbursements are consistent with past trends for the quarter. The cash management program contains enough liquidity to meet at least the next three months of expected expenditures by the City as well as by related parties. If you have any questions concerning this report, or require additional information, contact Brigitte Elke, Finance Director at (805) 781-7510. I nvestment Portfolio Benefits All Funds The City’s cash and i nvestment portfolio r epresents money fr om all City fund s, i ncluding the General Fund, enterprise funds (Water, S ewer, Parking, T ransit), special r evenue funds (T ouri sm, D owntown Assessments), capital projects funds, and other funds which are restricted to s pecific p urposes. In general, monies held b y the City ar e either allocated by the City C ouncil for spending or are p urp osefully retained in r eserve. F or ex ample, the money i n the Capital O utlay F und has been i dentified to p rovide particular capital p rojects f or the community, and there is a plan for s pending d own the cash b alance as the projects p rogress. B alances held i n r eserve per the City’s financial policies equate to 20% of the operating budget. For the fiscal year 2020-21, they are listed in the chart to the left. Fund FY 2020–21 General $ 10,251,000 Water $ 4,377,000 Sewer $ 2,311,000 Parking $548,000 Transit $734,000 Tourism $100,000 Investment Objectives The investment objectives of the City of San Luis Obispo are first, to provide safety of principal to ensure the preservation of capital in the overall portfolio; second, to provide sufficient liquidity to meet all operating requirements; and third, to earn a commensurate rate of return consistent with the constraints imposed by the safety and liquidity objectives. The City follows the practice of pooling cash and investments for all funds under its direct control. Funds held by outside fiscal agents under provisions of bond indentures are maintained separately. Interest earned on pooled cash and investments is allocated quarterly to the various Quarterly Investment Report funds based on the respective fund’s average quarterly cash balance. Interest earned from cash and investments with fiscal agents is credited directly to the related accounts. It is common for governments to pool the cash and investments of various funds to improve investment performance. By pooling funds, the City can benefit from economies of scale, diversification, liquidity, and ease of administration. The City uses the services of an investment advisor, PFM Asset Management, to manage a portion of the City’s portfolio. The City’s strategy is to retain approximately 25% of the portfolio to manage its day - to -day cash flow needs, while PFM’s focus is on longer -term investment management. In addition, the City has retained direct control of several investments that had been acquired before the City began to use investment advisors. All investments are held by the City in a safekeeping account with Bank of New York Mellon, except for investments held by trustees related to bond financings, which are held by either US Bank or Bank of New York Mellon. Environmental, Social, and Governance (ESG) Investment Objectives ESG i nvesting i s the p r ocess of i ncorp orating t he anal ysis of non- financial environmental, social, and governance factors into investment decisions alongside traditional financial criteria. As set forth in the City’s Investment Management Plan dated August 18, 2020, it is the City’s objective to integrate environmental, social, and governance (“ESG”) factors into investment decisions for its investment portfolio to the extent practical and possible. In order to achieve this o bjective, the City w ill ap ply the ESG Investment Criteria to the following Investments: A sset -Backed Securities, Bankers’ Acceptances, C ommercial Paper, Corporate, Medium-Term & Bank N otes, and N egotiable Bank D eposit O bligations. The ESG investment criteria is based on ESG Risk Ratings, industry and sub-industry definitions, and sub-industry rankings as provided by Sustainalytics. 1. Market Value includes accrued interest. Source: Sustainalytics. Data as of December 31, 2020 and September 30, 2020, as indicated. Please see important disclosures at the end of this presentation. ESG Q4 2020 Summary •On average, the portfolio maintained medium ESG risk as of December 31, 2020. •The portfolio’s average ESG risk rating improved quarter- over-quarter as a result of modest adjustments to issuer ratings and the sale of Wells Fargo & Company. •At the issuer level, ESG risk ratin gs ranged from 10.9 (low risk) to 36.2 (high risk) as of December 31, 2020. •The Portfolio’s ESG risk exposure score remained within the medium range. A lower ESG exposure score generally decreases ESG risk. •The Portfolio’s ESG Management rating also remained within the medium range quarter-over-quarter. Higher management scores generally reduce ESG risk. 0 10 20 30 40 50 60 70 80 90 100 1 ESG Risk Rating ESG Rated 29/40 issuers with a of a market value of $83.9 million1 $51,032,530 (60.8%) Non-ESG Rated Issuers: U.S. Treasuries, Municipal Bonds, Federal Home Loan Banks, and Federal Farm Credit Banks Sector Allocation U.S. Treasury Federal Agency Municipal Corporate Notes Certificates of Deposit ABS Green shades are ESG-rated sectors Average: 23.0 Data Source: Sustainalytics. Data as of December 31, 2020 and September 30, 2020, as indicated. Please see important disclosures at the end of this presentation. Risk Rating Contributions are based on material ESG issue weightings. Material ESG issue weightings may not be released by Sustainalytics for all issuers, causing the sum of percentages to not total 100%. ESG Quarter-Over-Quarter Summary Comparison Portfolio Statistics Quarter End 12/31/20 Quarter End 9/30/20 Average ESG Risk Rating 23.0 24.3 Average Exposure Score 42.0 42.5 Average Management Score 48.2 45.4 0% 12% 77% 10%0%0%10% 83% 7%0%0% 25% 50% 75% 100% Allocation by ESG Risk Rating 12/31/2020 9/30/2020 7% 48% 42% Environmental 7% Social 54% Governance 39% Risk Contribution by ESG Pillar Data Source: Sustainalytics. Data as of December 31, 2020. Please see important disclosures at the end of this presentation. ESG Quarter- Over -Quarter Summary Comparison 0 10 20 30 40 50 Federal Agency Certificates of Deposit Corporate Notes ABS ESG Risk Rating Maximum Medium ESG Risk Score Maximum Permitted ESG Risk Score (Top Subindustry Performer) 22.9 28.4 24.1 22.0 Industry Diversification 30.9 22.4 23.2 25.3 27.3 16.2 27.4 17.9 15.8 15.2 16.60 15 30 45 ESG Risk Rating by Industry Average ESG Risk Rating = 23.0 10 4 2 1 1 1 2 3 1 3 1 Industry Distribution (# of Issuers) 9.6%67.2% 0.5% 0.6% 5.7% 1.1% 3.6% 4.3% 1.2% 4.0% 2.1% (Allocation % of Market Value ) Data Source: Sustainalytics. Data as of December 31, 2020. Please see important disclosures at the end of this presentation. Holdings as of December 31, 2020 –Sorted By Industry ESG Assessment Issuer Sustainalytics Industry % Weight ESG Risk Rating 12/31/2020 ESG Risk Rating 9/30/20 Change in ESG Rating Honda Motor Co Ltd Automobiles 2.9%28.5 28.5 - Toyota Motor Corporation Automobiles 4.3%30.3 29.5 0.8 Nissan Motor Co Ltd Automobiles 1.8%34.1 34.3 (0.2) Hyundai Motor Company Automobiles 0.6%36.2 37.8 (1.5) DNB ASA Banks 1.2%15.7 16.9 (1.1) Federal National Mortgage Association Banks 34.1%20.2 22.3 (2.1) Nordea Bank AB Banks 2.3%21.9 20.3 1.7 Skandinaviska Enskilda Banken AB Banks 2.4%23.9 24.0 (0.2) Federal Home Loan Mortgage Corp Banks 20.9%24.8 25.1 (0.3) Societe Generale SA Banks 1.6%25.9 32.7 (6.8) Bank of America Corporation Banks 1.2%26.3 28.0 (1.7) Sumitomo Mitsui Financial Group Inc Banks 1.2%26.9 27.8 (0.9) JPMorgan Chase & Co.Banks 0.9%27.9 22.0 5.9 Credit Suisse AG Banks 1.2%31.8 31.8 - Capital One Financial Corporation Diversified Financials 0.4%23.2 26.6 (3.4) Data Source: Sustainalytics. Data as of December 31, 2020. Please see important disclosures at the end of this presentation. Holdings as of December 31, 2020 –Sorted By Industry ESG Assessment Issuer Sustainalytics Industry % Weight ESG Risk Rating 12/31/2020 ESG Risk Rating 9/30/20 Change in ESG Rating Ally Financial Inc.Diversified Financials 0.1%24.0 23.9 - The Hershey Company Food Products 0.6%25.3 25.3 0.1 Walmart Inc.Food Retailers 5.7%27.3 28.4 (1.1) Walt Disney Co Media 1.1%16.2 16.2 - Bristol-Myers Squibb Company Pharmaceuticals 1.2%22.6 28.1 (5.5) Pfizer Inc Pharmaceuticals 2.3%30.0 29.7 0.4 The Home Depot Inc Retailing 1.6%11.5 13.4 (1.9) CarMax Inc.Retailing 1.1%13.5 13.5 - Amazon.com Inc Retailing 1.6%27.4 27.4 - Intel Corp Semiconductors 1.2%15.8 15.4 0.4 Adobe Systems Inc Software & Services 1.3%10.9 13.3 (2.4) Mastercard Incorporated Software & Services 1.3%16.3 16.6 (0.3) International Business Machines Corp Software & Services 1.5%17.9 17.7 0.1 Apple Inc Technology Hardware 2.1%16.6 23.6 (7.0) Data Source: Sustainalytics. Data as of December 31, 2020. Please see important disclosures at the end of this presentation. Socially Responsible Investment Policy In addition to the ESG criteria, the City’s Socially Responsible Investment (SRI) Policy restricts who from the portfolio issuers can generate revenue from casinos, gambling, racetracks, brewery, wine/spirits, tobacco, electronic cigarette, or tobacco- related products, or who can support the direct production or drilling of fossil fuels. The City’s portfolio is in compliance with SRI restrictions. The tables to the right show the Bloomberg Industry Classifications (“BICS”) for all the portfolio’s holdings. Issuer Sector (BICS) Ally Auto Receivables Trust Automobiles Manufacturing American Honda Finance Automobiles Manufacturing Carmax Auto Owner Trust Automobiles Manufacturing Honda Auto Receivables Automobiles Manufacturing Hyundai Auto Receivables Automobiles Manufacturing Nissan Auto Receivables Automobiles Manufacturing Toyota Motor Credit Corp Automobiles Manufacturing Copart, Inc.Automobiles Manufacturing Credit Suisse Group Banks Nordea Bank Ab Banks Skandinaviska Enskilda Banken Ab Banks Societe Generale Banks Sumitomo Mitsui Financial Group Inc Banks Apple Inc Communications Equipment Mastercard Inc Consumer Finance Bank Of America Co Diversified Banks JPMorgan Chase & Co Diversified Banks San Diego Community College District Education University Of California Education Issuer Sector (BICS) The Walt Disney Corporation Entertainment Content Dnb Asa Financial Services California State Financing & Development Hershey Company Food & Beverage Maryland State General Government FHLB Government Agencies FFCB Government Agencies FHLMC Government Agencies FNMA Government Agencies Wal -Mart Stores Inc Mass Merchants Bristol -Myers Squibb Co Pharmaceuticals Pfizer Inc Pharmaceuticals Amazon.Com Inc Retail -Consumer Discretionary Home Depot Inc Retail -Consumer Discretionary Intel Corporation Semiconductors Adobe Inc Software & Services IBM Corp Software & Services United States Treasury Sovereigns Source: Bloomberg. BICs is an industry classification system developed and utilized by Bloomberg that classifies securities based on business, economic function, and other characteristics. Disclosures This material is based on information obtained from sources generally believed to be reliable and available to the public, however PFM Asset Management LLC cannot guarantee its accuracy, completeness or suitability. This material is for general information purposes only and is not intended to provide specific advice or a specific recommendation.All statements as to what will or may happen under certain circumstances are based on assumptions, some but not all of which are noted in the presentation. Assumptions may or may not be proven correct as actual events occur, and results may depend on events outside of your or our control. Changes in assumptions may have a material effect on results. Past performance does not necessarily reflect and is not a guaranty of future results. The information contained in this presentation is not an offer to purchase or sell any securities. There is no guarantee the investment objectives will be achieved as the investment portfolio will only include holdings consistent with the applicable Environmental, Social, and Governance (ESG) guidelines. As a result, the universe of investments available will be more limited. ESG criteria risk is the risk that because the investment portfolio ESG criteria excludes securities of certain issuers for nonfinancial reasons, the investment portfolio may forgo some market opportunities that would be available to investment portfolios that do not apply ESG criteria. PFM is the marketing name for a group of affiliated companies providing a range of services. All services are provided through separate agreements with each company. This material is for general information purposes only and is not intended to provide specific advice or a specific recommendation. Investment advisory services are provided by PFM Asset Management LLC, which is registered with the Securities and Exchange Commission under the Investment Advisers Act of 1940. The information contained is not an offer to purchase or sell any securities. The material contained herein is for informational purposes only. This content is not intended to provide financial, legal, regulatory or other professional advice. Applicable regulatory information is available upon request. For more information regarding PFM’s services or entities, please visit www.pfm.com. Distribution List City Council Heidi Harmon Mayor Andy Pease Vice Mayor Aaron Gomez Council Member Erica A. Stewart Council Member Carlyn Christianson Council Member Investment Oversight Committee Heidi Harmon Mayor Daniel Humphrey Public Member Derek Johnson City Manager Brigitte Elke Director of Finance Debbie Malicoat Accounting Manager/Controller Natalie Harnett Principal Financial Analyst—Budget Independent Auditor Badawi & Associates PFM Asset Management LLC Monique Spyke Managing Director Investment Earnings FOR THE FISCAL YEAR ENDED JUNE 30, 2020 Investment Earnings Investment Earnings totaled $6.4M for the fiscal year 2019-20 as presented in the City’s Annual Financial Report (CAFR).$3,368,951 $2,880,634 $121,299 GOVERNMENTAL ACTIVITIES BUSINESS TYPE ACTIVITIES FIDUCIARY ACTIVITIES FY 2019 -20 INVESTMENT EARNINGS Sources of Investment Income Governmental accounting standards require us to record changes in the market value of the City’s investments. However, the City may not realize the gains or losses resulting from these fair market value adjustments which can fluctuate significantly from year to year. It is the City’s policy to make investment decision based on holding them through maturity. Governmental Funds Investment earnings are allocated across the funds on a quarterly basis. The allocation is performed based on average quarterly cash balances in each of the funds. *Affordable housing reflects the recognition of accrued interest earnings associated with the City’s Affordable Housing program in addition to the portfolio allocation. $1,362,983 $925,550 $252,654 $174,495 $137,453 $515,726 AFFORDABLE HOUSING FUND* GENRERAL FUND CIP TRANSP IMACT FEE FUND LOCAL SALES TAX FUND CIP PARK DEVELOPMENT FUND OTHER GOVERNMENTAL FUNDS FY 2019 -20 INVESTMENT EARNINGS Enterprise Funds The City’s four enterprise funds are presented as business-type activities in the government-wide financial statements. The City considers all four if its enterprise funds to be major funds. We see here the investment earnings allocated to each. $663,838 $1,181,829 $976,529 $58,438 WATER FUND SEWER FUND PAKRING FUND TRANSIT FUND FY 2019 -20 INVESTMENT EARNINGS Agency Funds Agency funds are used to account for funds held by the City as an agent for private individuals, organizations, or other governmental agencies. Agency funds are also allocated earnings from the City’s portfolio of investments. $76,407 $554 $8,797 $8,881 $9,261 $4,991 $12,407 WHALE ROCK JACK HOUSE HAZMAT FUND CITY OF SLO PEG SLCUSD PEG DUVALL FUND BOYSEN RANCH CONSERV FY 2019 -20 INVESTMENT EARNINGS Historical Cash Balances Plotting the historical balance of the City's Checking account reveals the seasonality inherent in its operations. Despite this seasonality the City's cash balance have increased steadily since 2017 However, given the uncertainties that came with 2020, prior efforts to reduce the City's cash balance were delayed as a precaution. To address the increase in excess cash, the City revisited discussions to better utilize these funds. Monthly Portfolio Balances With the help of PFM, historical portfolio balances and seasonal data were analyzed in addition to liquidity needs. The City decided on a 15% liquidity cushion on top of its minimum required liquidity to meet its cash flow needs. The result was a $20 million transfer of excess cash from its Chase Bank account into higher yield securities with PFM. This transfer occurred in December of 2020. Portfolio Allocation With the help of PFM, historical portfolio balances and seasonal data were analyzed in addition to liquidity needs. The City decided on a 15% liquidity cushion on top of its minimum required liquidity to meet its cash flow needs. The result was a $20 million transfer of excess cash from its Chase Bank account into higher yield securities with PFM. This transfer occurred in December of 2020. Earnings Allocation Investment Earnings from the City's portfolio are distributed across multiple funds on quarterly basis based on cash balances in each of the funds. Therefore, the transferring of excess cash into securities with higher yields than the City's Checking Account has a direct impact on these fund balances. Allocations for the quarter ended Dec 2020 shown to the right.